Impact of inflation on agricultural produce
Inflation has been headline news for several months and is certainly an issue impacting all businesses and industries. In economics, inflation is a sustained increase in the general price of goods and services in an economy over some time.
The effect of inflation slower increases in agricultural producers’ prices than for inputs. This results in declining profitability and purchasing power comparability of agricultural products, increasing debts and risk. Which will result in the lack of agricultural competitive position in the international market. Input price inflation generates cash flow problems for farmers and increases the necessity for a high level of operational management and cautious financial strategies.
Inflation affects both producers and consumers. For agriculture, historical data support the theory that commodity prices generally rise during periods of inflation. But so do agricultural input prices. Higher commodity prices will lead to increased global demand for farm inputs such as seeds, fertilizer, livestock, farm equipment, etc., thus putting upward pressure on input prices, holding all other factors constant. Higher interest rates can also impact land values, exchange rates, and overall family living expenses. This is all impacting the overall purchasing power of farm resources. Higher prices of goods mean that other countries will find it less attractive to purchase our goods. This will lead to a decline in exports and lower production of farm produce and higher unemployment in our country.